BOLI recently issued proposed rules that would implement the remaining provisions of the Oregon Equal Pay Act. (As a refresher, a summary of the Act's provisions is available here.) The proposed rules are available on BOLI's website, and the deadline to comment is September 28 at 5 p.m.
The proposed rules provide some clarity, but leave other questions unanswered. Below are the top five takeaways:
- Red-circling permitted. Although the Act prohibits an employer from lowering a higher-paid employee's salary to create pay equity, the proposed rules confirm that employers may "red-circle," freeze, or otherwise hold an employee's salary constant as other positions' compensation catches up. Such a freeze is acceptable because it is not considered a reduction in salary for the higher-paid employee. Some employers already have employment agreements that guarantee pay increases; it is unclear whether employers that freeze pay to comply with the Act are still liable for breaching those agreements.
- Declined benefits are compensation. Proposed OAR 839-008-0020(2) provides, "the cost of a bona fide benefit offered by an employer, but declined by an employee, may be considered as part of the total amount of compensation paid to the employee." Thus, employers do not have to provide alternative compensation to employees to make up for benefits that they decline. In the same vein, paying different rates for insurance coverage that is offered to all employees does not violate the Act.
- Reminder: No catchall exists. The federal Equal Pay Act enumerates specific factors that are acceptable to explain pay differentials, but it also includes a catchall provision allowing employers to have other reasons. Oregon's Act is different because it does not contain a catchall to explain pay differentials. The only acceptable factors are those listed in the statute: a seniority system, a merit system, or a system that measures earnings by quantity or quality of production, location, travel, education, training, and experience.
- Limited considerations when determining comparable work. Proposed OAR 839-008-0010 enumerates factors that an employer may consider when analyzing whether work requires substantially similar knowledge, skill, effort, responsibility, and working conditions. These factors are not exhaustive, and the categories offer some room for creativity and subjective interpretation. For example, the "impact of an employee's exercise of their job functions on the employer's business" could include a range of performance metrics.
- The market and an employer's financial well-being are not defenses. The proposed rules and the Act do not include market conditions and an employer's financial condition as acceptable factors to explain pay disparities. But the proposed rules do include loyalty and signing bonuses in the Act's definition of "compensation." The inclusion of those bonuses means that employers may need to get creative when trying to recruit and retain top talent. This creates a difficulty for employers in both good and bad times—they may not use a poor market to justify lower pay, and they may be prevented from using financial incentives to cope with a "hot" market.
What three things can employers do now?
As the window for compliance narrows, employers should consider the following three steps to ensure pay equity and assess and limit risk:
- Conduct a privileged pay-equity analysis. An employer should work with its counsel to conduct a privileged analysis that identifies any disparities in pay. After addressing potential problem areas, the employer should consider updating the analysis, so that a nonprivileged version is available for the employer to use as an affirmative defense under the Act.
- Update job descriptions and communicate expectations. If employers need time to bridge any pay gaps between earners, it may be helpful to reevaluate job duties and responsibilities, so that they accurately reflect each position and correlate to discrepancies in pay. Shifting or adding duties may be necessary to address disparities or clarify whether employees' work is of a comparable character.
- Make performance evaluations and measures of productivity count. Employers that rely on employee performance to justify pay differentials should ensure that their employee performance evaluations are meaningful, are performed systematically, and include objective measures of performance, when appropriate. The proposed rules describe merit systems in a manner consistent with a well-functioning performance appraisal system that is “based upon employee performance as measured through job-related criteria,” and that "takes employees' ratings into account in determining employee pay rates.” That type of merit system is a bona fide factor that may be considered in differentiating employee pay.